Canadian Accredited Insurance Broker (CAIB) One Practice Exam

When does a contract of insurance take effect according to the Insurance Act?

1. 12:01 am standard time at the address of the named insured

2. 12:01 am standard time at the address of the risk location

3. 12:01 am local time at the address of the named insured

4. 12:01 am local time at the address of the insurance company

The correct answer is: 12:01 am standard time at the address of the named insured

A contract of insurance typically takes effect at 12:01 am standard time at the address of the named insured. This setting is important because it establishes a clear and definitive start time for the insurance coverage, ensuring that both the insurer and the insured have a mutual understanding of when the protection begins. The use of "standard time" helps eliminate confusion that may arise from variations in time zones, especially in a country as geographically vast as Canada. Choosing this specific time at the named insured's address is significant since it ties the start of coverage to the individual or entity that holds the policy. It underscores the importance of location in determining coverage, as insurance policies are often tailored to the specific risks associated with a particular insured location. In contrast, the other options may introduce ambiguities or misalignments that could lead to misunderstandings regarding when coverage starts. The location of the risk or the insurance company's address would not provide the same clarity about the coverage timeframe relevant to the named insured. Thus, defining the effective time at the named insured's address establishes a consistent and enforceable starting point for the contract.